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Industry welcomes VAT cut on heat pumps

UK: The Building Engineering Services Association (BESA) has praised chancellor Rishi Sunak for removing VAT on heat pump installations and for simplifying qualifying rules.

The association also welcomed Sunak’s decision to bring forward business rate relief on plant and machinery used in onsite renewable energy generation and storage by a year and to provide 100% tax relief on eligible low carbon heat networks. 

BESA described these initiatives as “a significant boost” to the UK’s plans for decarbonising buildings and estimates that this could save businesses more than £200m while helping the UK achieve its net zero ambitions. 

The chancellor’s decision to abolish VAT on the installation of domestic energy saving measures, including heat pumps, for five years from April 1 was warmly welcomed as a means to help drive the uptake of carbon reducing technologies. 

As well as cutting VAT on heat pump installations from 5% to zero, the government has also considerably simplified the rules about which types of heat pump qualify. Previously, those used for cooling were not eligible for the reduced tax rate, but the only rule that applies now is that the installation must be capable of heating the home. 

“The cut in VAT is a welcome incentive for business and domestic users, but equally helpful is the simplification of what had been unnecessarily complex tax rules around heat pumps,” said BESA’s head of technical Graeme Fox. 

“Previously, air-source heat pumps of the split air conditioning type had been specifically ruled out from the reduced VAT scheme,” he explained. “This rule was amended last year, but people were still confused. So, following lengthy talks between the BESA and HMRC, the guidance has been updated to clarify that air source reverse cycle heat pump air conditioners can be treated in the same way as monobloc heat pumps for VAT purposes.” 

Remove energy levy bias

Kensa, the UK manufacturer of ground-source heat pumps, also welcomed the chancellor’s announcement, describing the VAT cut as “a step in the right direction”.  However, it urged the government to level out the “current bias” in energy levies which causes electricity to be four times as expensive as gas. The levies, says Kensa, should, instead, be properly proportioned against carbon emissions.

“Addressing this distortion will ensure that homeowners installing low carbon heat pumps can feel the financial benefits of the technology’s exceptional efficiencies at a time when people are looking to make as many savings as possible on their heating bills,” the company said in a statement.

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